Q. Please help, I’m so worried. I’ve received several threatening letters from the Taxman demanding money, but I’m sure I’m up to date with my tax payments. I’m terrified the bailiffs will turn up on my doorstep and demand payment. What should I do? A. Let us see the Taxman’s letters and we will try and sort the matter out for you with the Tax Office. In the meantime, keep this number to hand: 0300 200 3862. If bailiffs do turn up ask to see their photo ID cards, take a note of the ID numbers and call that number to confirm whether the bailiffs are genuine. Also collect evidence of the tax payments you have made recently, such as bank statements. These may be enough to prove to the bailiffs that you have paid the tax you owe. If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
Pension Lifetime Allowance
The Government want us to save enough so we can each draw an adequate pension in retirement, but if you save too much you will be stung with a 55% tax charge when you draw your pension. The boundary between ‘enough’ and ‘too much’ savings is set in law by the lifetime allowance, which is a value of your total pension savings at retirement. This allowance will be reduced from £1.5 million to £1.25 million on 6 April 2014.
To give you an overview on these seemingly high numbers: an annual pension of £75,000 for a man aged 65 at retirement, today requires a pension fund of roughly £1.5 million. A pension fund of £1.25 million would deliver an annual pension of about £62,500 to the same person. If you contribute to a defined contribution pension scheme (the most common type), the value of your pension fund will be shown on your annual pension scheme statement.
If you are a member of a final salary pension scheme it will promise to pay you a pension equivalent to a percentage of your final salary. That could be as much as 2/3rds of your final salary. Work backwards from your current salary to get a rough idea of how much your pension fund may be worth. Your pension scheme trustees will be able to give you more accurate figures.
Once you have those figures, you can judge whether you need to elect to fix your lifetime allowance at its current level of £1.5 million, where your pension fund already exceeds £1.25 million. This is known as ‘fixed protection 2014’, and you need to apply to HMRC to do this before 6 April 2014.
Once fixed protection 2014 is obtained you won’t be able to make any further pension contributions to a registered pension scheme. If you are a member of an occupational pension scheme which receives automatic contributions on your behalf, you will have to opt out of that scheme or lose the fixed protection.
After 6 April 2014 there will be another way of protecting your pension fund, called ‘individual protection 2014’. This will fix your lifetime allowance at the value of your pension rights as at 6 April 2014, up to a maximum of £1.5 million. You should discuss with your financial adviser which type of pension protection is best for you.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
VAT on Storage Change
The law on whether VAT must be charged on storage facilities changed from 1 October 2012. Before that date if you let out space for storage to individuals or businesses, that service could be exempt from VAT, if you had not elected for the whole building to be subject to VAT (AKA: ‘opted to tax’). Since October 2012, if you are VAT registered, you generally need to charge VAT at 20% on the supply of storage areas.
The Taxman has recently confirmed in a new VAT information sheet (10/13) that any let space which is used for storage carries 20% VAT, not just the lock and leave facilities marketed as ‘self-storage’. This could affect businesses who let out properties or unused parts of their buildings to others who use that space to store goods or materials. For example a farmer might let out surplus farm buildings on a temporary basis.
There are only a few exceptions to this new VAT rule. Those include where the space is let to a charity and it is not used for business purposes, and where the space is predominately used for an active purpose such as retail, and the storage is an ancillary activity.
It is the landlord’s responsibility to know how the let space is used and charge the relevant rate of VAT. If you have not charged VAT when you should have done for periods from 1 October 2012, you may need to correct this error in your next VAT return.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
New ATED Charge
The annual tax on enveloped dwellings (ATED) came into effect on 1 April 2013. This new tax applies to residential properties in the UK worth over £2 million, which are owned by a non-natural person, such as a company, trust or partnership that includes a company as a member.
The value of the residential property is measured as at 1 April 2012, not the purchase price.
Is your farmhouse owned by a farming partnership, which also has a company as a member? Does your company own properties which are used to house employees?
In both of those circumstances the property is potentially subject to the ATED charge if it is worth £2 million or more. The ATED charge ranges from £15,000 to £140,000 per year, and is payable by 31 October 2013 for 2013/14.
There are many exemptions and reliefs for ATED, including for farmhouses occupied by farmworkers, and for properties occupied by employees who don’t individually own more than 10% of the company. However, to claim the relevant exemption, the property owner needs to submit an ATED return to HMRC without delay.
The ATED return can be completed online on the HMRC website, and there is no need to register through the Government gateway. You can also download a paper version of the ATED return from the HMRC website. There is space on the ATED return to appoint us as your tax agent so we can then submit the return on your behalf. Note that the deadline for submitting the ATED return for 2013/14 is 1 October 2013.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
Resurfacing – Repairs or Capital?
Any business owner whose property includes a road, driveway, or parking area, will have to repair those surfaces at some point. The question is whether to charge the costs to ‘repairs’ or to ‘capital improvements’ in the accounts.
This decision has significant tax consequences, as the cost of repairs will qualify for a tax deduction, but capital improvements will not. Capital expenditure on improvements or renewals doesn’t get a tax deduction until the property is sold. Capital allowances can’t be claimed for the cost of laying roads or the structure of buildings, except in rare cases where the facility is used for research and development.
Tax Inspectors frequently challenge the cost of repairs in business accounts, particularly where the sum expended in one year is large. The Inspector may argue that where a road is resurfaced, the work should be treated as a renewal (capital) and not a repair. However, following a number of tax cases on this issue HMRC has changed its official guidance to its Tax Inspectors. The new guidance states that where a road has been resurfaced, that amounts to a repair and not a renewal or a replacement, so the cost is tax allowable.
There are still many grey areas which can be argued to be one side of the capital/repairs line or the other.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
Question and Answer- Maternity Pay
Q. I formed my new company in November 2012 and my wife (Liz) became a director and employee of that company at that time. Liz is now expecting our first child in August 2013. Can our company pay Liz statutory maternity pay?
A. Unfortunately Liz has not worked for 26 weeks for her employer before the 15 weeks prior to birth, so statutory maternity pay is not due. There is nothing to stop your company from paying Liz her normal wages while she is on maternity leave, but as those wages do not amount to statutory maternity pay the company can’t reclaim that pay from the tax office.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
Question and Answer – non-executive director
Q. I am a non-executive director of a number of companies. Can I offer consultancy services to those companies on a self-employed basis?
A. You can offer your services to those companies on a self-employed basis, but you need to have a clear contract which distinguishes your work as a consultant from work you do as a director. The self-employed tasks need to be invoiced separately and declared to HMRC as a separate business from your fees as a director.
Generally the fees for work you perform as a director should be taxed under PAYE. Legislation introduced in the Finance Act 2013 requires the IR35 provisions to apply to work done as officers where that work is charged through a third party, such as a personal service company.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
Question and Answer – Premium Bonds
Q. I am thinking of investing some money in premium bonds. Are there any tax advantages or disadvantages?
A. You won’t receive interest on the money held in premium bonds but any prizes you receive from those bonds are tax free. The prize fund is calculated on the basis of a nominal interest rate of 1.3%. Thus if you hold £10,000 in premium bonds for one year, on average you should expect to win £130 as bond prizes over the year. However, that return is not guaranteed and you may win more or less. You could also win the big prize of £1million!
The premium bonds will form part of your estate for inheritance tax purposes, so will be subject to inheritance tax on your death if the value of your total estate exceeds the exempt limit of £325,000 (fixed to 2018).
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
VAT Mistakes
If your company makes a deliberate VAT mistake, which results in less VAT being paid over to HMRC than is correctly due, you as the director of that company can be issued personally with a penalty. This very rarely happens, but the VATman does have the power to impose such penalties where he can show the underpaid VAT was due to the dishonest conduct of one or more of the directors.
Two recent cases illustrate the types of situations where a personal penalty can be imposed:
Mr Brookes is the sole director of a building company. A VAT inspection found suppliers’ invoices to support VAT inputs were missing. Brookes obtained ‘copy’ invoices from the main suppliers, but those ‘copies’ were found to be very poor forgeries. Brookes was served with a personal penalty of £43,753 which was 60% of the over claimed VAT.
Mr & Mrs Walker failed to submit eight successive VAT returns for their company. The VAT office issued estimated VAT assessments to the company which were less than the VAT eventually found to be due, and the Walkers did not challenge those estimated assessments. The Walkers were served with personal penalties totalling £194,214.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
RTI for Seasonal Workers
Have you taken on casual workers this summer? Perhaps you are paying piece-rates for the amount of produce picked or packed by each person. Reporting such small and variable payments under the new RTI system is a significant hassle.
The RTI rules require you to report each payment to workers on or before the date of the payment. Fortunately you may be able to use one of these two concessions to ease your RTI reporting burden:
a) Where you pay your casual workers daily or more than once a week, but the amounts paid are less than £109 per person per week, you can send RTI reports to HMRC weekly; or
b) Where the total number of your employees, including casual workers, is less than 50, you can send your RTI reports to HMRC on a monthly basis.
Concession b) will only apply for payments made before 6 April 2014.
Your casual workers are likely to have no set working hours for each week. In effect they will be on a zero-hours contract; paid for the hours they work, but otherwise not at all. In such cases you should choose option D of hours worked on the FPS report under RTI.
The Government wants employers to report data on the hours worked by employees in order to prevent fraud in the Tax Credits system. Under Universal Credit the hours worked will not be relevant to the employee’s claim, so in time when all claimants are moved from Tax Credits to Universal Credit, the requirement to report hours worked should be dropped.
If you would like any further information, please do not hesitate to contact Southside Accountants Wimbledon & London.
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